River Cruises is all-equity-financed. Current Data Number of shares 100,000 Price per share $ 10 Market value of shares $ 1,000,000 Outcomes State of the Economy Slump Normal Boom Profits before interest $ 82,000 $ 139,000 $ 200,500 Suppose it now issues $250,000 of debt at an interest rate of 10% and uses the proceeds to repurchase 25,000 shares. Assume that the firm pays no taxes and that debt finance has no impact on firm value. Refer to the above table to compute the missing data. (Do not round intermediate calculations. Round "Earnings per share" to 3 decimal places. Enter "Return on shares" as a percent rounded to 2 decimal places.) Data Number of Shares ________? Price per share $10 Market value of shares ________? Market value of debt __________? Outcomes State of the Economy Slump Normal Boom Profits before interest $82,000 $139,000 $200,500 Interest ________? _______? _________? Equity earnings ________? _______? _________? Earnings per share ________? _______? _________? Return of shares ________% _______% _________% Expected Outcome
River Cruises is all-equity-financed.
| Current Data | |||||||||
| Number of shares | 100,000 | ||||||||
| Price per share | $ | 10 | |||||||
| Market value of shares | $ | 1,000,000 | |||||||
| Outcomes | |||||||||
| State of the Economy | |||||||||
| Slump | Normal | Boom | |||||||
| Profits before interest | $ | 82,000 | $ | 139,000 | $ | 200,500 | |||
Suppose it now issues $250,000 of debt at an interest rate of 10% and uses the proceeds to repurchase 25,000 shares. Assume that the firm pays no taxes and that debt finance has no impact on firm value. Refer to the above table to compute the missing data. (Do not round intermediate calculations. Round "Earnings per share" to 3 decimal places. Enter "Return on shares" as a percent rounded to 2 decimal places.)
Data
Number of Shares ________?
Price per share $10
Market value of shares ________?
Market value of debt __________?
Outcomes
State of the Economy
Slump Normal Boom
Profits before interest $82,000 $139,000 $200,500
Interest ________? _______? _________?
Equity earnings ________? _______? _________?
Earnings per share ________? _______? _________?
Return of shares ________% _______% _________%
Expected Outcome
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